Russell Microcaps Rebalancing - Financials Edition
Additions and deletions from the annual Russell Reconstitution
What is the annual Russell Index “Reconstitution” Event?
Each year around June, the FTSE Russell reconstitutes or rebalances its indices to ensure compliance with its mandates and criteria. This provides a nice opportunity to go hunting for new companies and/or bargains. For example, last year I found and bought Medifast. Of note, this year the Russell announced it was moving to a twice-yearly rebalancing.
I decided to change my process to examine the additions AND deletions of each index (in this case, the Russell Microcap) by industry.
Here are the cutoffs for its various indices. I typically look at the Microcap and Russell 2000 rebalancings.
Here are the additions to the Microcap index segmented by industry:
And here are the deletions:
Financials
A few interesting names popped up in the Microcap financials segment:
Chain Bridge Bancorp (CBNA)
Index addition
$172mm market cap
I might have passed on Chain Bridge if not for Hingham Institution for Savings (see my annual HIFS update), which bought shares in its 2024 IPO. CB has the opposite “problem” as Hingham. Where Hingham could use additional low-cost deposits, CB is flush with cash because of its model serving political organizations from its Washington, DC headquarters. While its deposits fluctuate with election cycles, it maintains so much cash, on average, that it must move deposits off balance sheet to remain in compliance with certain ratios. The bank was only 25% loaned up as of December 2024. As of today, it trades at 1.14x Q1 2025 book value.
FB Bancorp (FBLA)
Index addition
$236mm market cap
FBLA stood out for being a recent mutual conversion. It trades at just 67% its Q1 2025 book value of $331mm. FBLA is based in New Orleans, Louisiana, and is the parent of Fidelity Bank, a state-chartered bank dating back to 1908. The bank gathers deposits via its 18 branch locations and holds a portfolio of residential and commercial real estate mortgages in addition to other typical small bank lending activities like construction and C&I. Non-performing assets as of YE 2024 were high at 1.72%.
Fifth District Bancorp (FDSB)
Index addition
$72mm market cap
Fifth District is another recent mutual conversion. It trades at just 57% of its Q1 2025 book value of $127mm. It is also located in New Orleans (must be something in the air down there). The bank has $531mm total assets primarily invested in 1-4 family residential mortgages (90% of total loans). It funds its balance sheet with deposits collected from its six branch locations.
Kentucky First Federal (KFFB)
Index deletion
$25mm market cap
KFFB appears to deserve its discount valuation of 50% of book value. According to a 10-year summary of its financials on QuickFS.net, the bank hasn’t generated anything better than a 0.7% ROA in the last decade. It could be ripe for an activist shakeout (@
and Joe Stilwell, I’m looking at you…). Caveat emptor with these sorts of things. Especially with a bank based in Hazard, Kentucky.
Nicolet Bankshares, Inc. (NIC)
Index deletion
$3.2bn market cap
NIC is a bank that deserves to be on the deletions list. By that I mean it’s done well and outgrown its place on the list of smaller companies. Nicolet boasts as being the most acquisitive bank in Wisconsin, with 9 acquisitions since 2013, and the second largest bank based in the state with total assets of $8.7 billion as of the end of 2024.
A quick look at the 10-year share count shows the source of its dry powder for making all of those acquisitions: From 2015 to 2024 shares increased from 4.4 million to 15.5 million, a CAGR of 13%. ROA and ROE look decent over that time period. Insiders have also been selling shares over the past two years. With a price/book of 1.7x, it’s no surprise to see such insider activity and additional share issuance. I don’t know enough about the history of the bank to have a strong opinion - I just know that sort of thing makes me uneasy.
Reading the 2024 letter to shareholders piqued my interest to flag NIC for further study.
Republic Bancorp
Index deletion
$1.5bn market cap
Republic Bancorp appears to be another case of a company growing out of the index. It boasts a strong 10-year history with steady increases in assets and earnings through organic growth; a slight decrease in shares is reported over the period.
The $6.8 billion asset, Louisville, Kentucky-based bank operates through three segments: Traditional banking, warehouse lending, and its Republic Processing Group. RPG is a tax refund, payment processing, and credit services business.
At 1.4x book, the bank isn’t cheap, but it appears to deserve its valuation. Funny how the better banks seem to have more disclosure. Like Nicolet above, Republic Bancorp has a letter to shareholders.
Stay Rational!
Adam
